Cognitive Dissonance

According to the Wall Street Journal‘s Semiannual Economic Forecasting Survey of 60 leading economists, only one, James F. Smith of Western Carolina University and Parsec Financial Management, expects to see a recession — two or more quarters of declining gross domestic product — in the U.S. this year.

That is despite the fact that three separate indicators have emitted strong warnings of an impending economic downturn.

Back in October, the Chicago Tribune noted that long-term interest rates had been lower than short-term rates since June, and that a

recession has followed seven out of the last eight times that the yield curve has been inverted.

In addition, the paper added,

new-car sales [were] down about 5 percent from a year ago. This has happened six times over the past 40 years, and in every instance the economy was either lapsing into recession or already in recession.

construction permits to build new homes [were] down 29% since August 2005. There have been eight comparable declines since 1950, and seven were followed by recessions.

Of course, none of these measures is infallible, and there is always the possibility that the optimists could turn out to be right. Still, with the housing market falling off a cliff and all three indicators pointing in the same direction, now is certainly not the time to be wandering around with rose-colored glasses on.

Then again, apparent cognitive dissonance on the part of mainstream tea-leaf readers should not be seen as all that surprising. As the Chicago Tribune notes,

not one recession in the past 50 years was forecast in advance by a major poll of economic forecasters, said James Stack, a market historian and editor of InvesTech Research.

My guess is, that track record will remain unblemished.

Must Watch Video:

Disclosure: We are compensated by websites we recommend. We only recommend companies that maintain the highest standards, and whom we have thoroughly researched.